Procuring
Cause
Hey!
That’s
MY
Client!
Procuring
Cause
Pitfalls
&
How
to
Avoid
Them
What
is
Procuring
Cause?
According to the National Association of
REALTORS® procuring cause is:
“the
uninterrupted
series
of
causal
events
that
leads
to
a
successful
transaction.”
What
does
that
mean?
Ultimately,
Procuring
Cause
is
a
“FACT
based”
analysis
of
the
specific
events
in
a
transaction
to
determine
who
should
be
paid
a
commission.
The
are
no
definitive
“rules.”
Only
“guidelines”
to
follow
based
on
the
facts.
Article
17
– NAR
Code
of
Ethics
Many
procuring
cause
disputes
are
arbitrable pursuant
to
the
REALTOR
Code
of
Ethics.
These include:
Disputes between REALTORS®
Disputes between agent members of REALTOR®
owned MLS
Disputes between REALTORS® and consenting
Time
Frames/Statute
of
Limitations
NAR/Arbitration
=
180
days
from
Closing
of
transaction
or
day
complainant
knew
or
reasonably
should
have
know
of
dispute.
State
Law/Statute
of
Limitations
=
varies
Procuring
Cause
“Guidelines”
NAR provides guidelines forarbitrators hearing procuring cause
complaints to consider as they
perform their analysis of the FACTS
involved in a dispute between
eligible parties.
What
are
some
of
the
facts
that
Guidelines
• When and How were the parties first introduced
and Who introduced them?
• Was there an offer of compensation made through
MLS or other writing?
• Were there any other written agreements between
the parties (agency, exclusive)?
• Was there an “uninterrupted series of events” that
lead to the sale? If not, how/why was it
interrupted and for how long?
• Was there conduct by the broker that could
reasonably be construed as abandonment or
neglect of the party?
Guidelines
(continued)
• Was the entry of a new broker into the transaction a
violation of any written agreements between the Parties?
• Was the parties decision to enter into a transaction the
result of broker’s effort or information?
• Is there evidence of bad faith on behalf of any of the
parties (brokers, buyer, seller, etc.)?
• Did the new broker initiate a separate, independent
series of events that ultimately lead to a successful
transaction?
LONG LIST! But only a handful of the types of
questions an arbitrator might have as they analyze
Fact
Pattern
#1
Listing Broker placed a listing in the MLS
and offered compensation to buyer
agents. Buyer Broker #1 showed the
property to Buyer on Sunday and again
on Tuesday. On Wednesday, Buyer Broker
#2 wrote an offer to purchase on behalf of
Buyer which was presented to the Seller
by Listing Broker and which was accepted
by Seller. At closing, a commission is paid
to Buyer Broker #2.
Fact
Pattern
#1
Claims
Under NAR rules, Buyer Broker #1 could
bring a claim against Buyer Broker #2
(NAR Standards of Practice 17‐4) OR
against Listing Broker, who had promised
to compensate the procuring cause of sale
via the MLS listing.
Assuming that all brokers are REALTORS,
Fact
Pattern
#1
Claims
(continued)
Under state law, Buyer Broker #1 MAY
be able to bring a claim against Buyer IF
the Buyer and Buyer Broker #1 were
parties to a written agreement (Exclusive
Right to Buy) OR, if no written
agreement, is there evidence of some
other form of agreement.
Fact
Pattern
#1
Analysis
(NAR)
In an arbitration hearing brought under NAR, the Hearing Panel will consider, among other things, why Buyer made the offer to purchase through Broker #2 instead of Broker #1. If it is determined that Broker #2 initiated a series of events which were unbroken in their continuity and which resulted in the sale, Broker #2 will likely prevail.
Fact
Pattern
#1
Analysis
(Contract
Law)
• What was relationship between Broker #1 and
Broker #2?
• Why did Buyer switch brokers?
• Did Buyer’s needs change between Tuesday &
Wednesday?
• Did Buyer Broker #1 do anything other than
show the property?
• Did Buyer have prior knowledge of the
property?
Fact
Pattern
#2
Listing Broker placed a listing in the MLS
and made an offer of compensation to
buyer agents. Buyer Broker #1 showed the
property to Buyer, who appeared
uninterested. Buyer Broker #1 made no
effort to further contact Buyer. Six weeks
later, Buyer Broker #2 wrote an offer on
the property on behalf of Buyer,
presented it to Listing Broker, and it was
Fact
Pattern
#2
Claims
Similar to the first fact pattern, Buyer
Broker #1 could likely file an arbitrable claim under NAR Code of Ethics against
either Listing Broker OR Buyer Broker #2. Ideally, Listing Broker and Buyer Broker #2
should be joined in the claim so that any
competing claims can be resolved in same
hearing.
Fact
Pattern
#2
Analysis
(NAR)
In Fact Pattern #2, the Hearing Panel will
likely be considering the length of time
without contact from Buyer Broker #1 that
transpired. Six weeks is a long period that,
absent additional facts, would likely
constitute abandonment of the Buyer by
Buyer Broker #1. Also, it may be easier for
panel to determine that Buyer Broker #2
initiated a second, separate series of events
Fact
Pattern
#2
Analysis
(Contract
Law)
• Did the Buyer execute an agreement with
Buyer Broker #1?
• Did the Buyer terminate the relationship
with Buyer Broker #1?
• Did the Buyer’s needs change during the
six week period?
• Did Buyer Broker #1 make any attempts to
contact Buyer during six‐week period?
Fact
Pattern
#3
Listing Broker placed a listing in the MLS
and offered compensation to buyer agents.
Broker Z, not a participant in the MLS,
called to arrange an appointment to show
the property to a prospective purchaser.
There was no discussion of compensation.
Broker Z presented Listing Broker with a
signed purchase agreement, which was
Fact
Pattern
#3
Claims
(NAR)
Broker Z was the procuring cause of sale,
BUT Listing Broker’s offer of compensation
was made only to members of the MLS.
Listing Broker never offered cooperation and
compensation to Broker Z, nor did Broker Z
request compensation at any time prior to
instituting the arbitration request. There was
no contractual relationship between them,
and therefore no issue to arbitrate.
Fact
Pattern
#3
Analysis
(Contract
Law)
• Did Broker Z have an agency agreement
with the Buyer?
• If so, what did the agency agreement state
about compensation?
• Under the circumstances, what would
Listing Broker have paid a participant in
Fact
Pattern
#4
Buyer Broker has had a long‐standing relationship with Buyer, the real estate manager of a large, diversified company. Buyer Broker has acquired or disposed of 12 properties for Client over a 5 year period. Buyer asks Buyer Broker to locate a large warehouse property to consolidate inventories from three local plants. Buyer Broker conducts a careful evaluation of the operational and logistical needs of the plants, prepares a report of his findings for Buyer, and identifies 4 possible properties that seem to meet most of Buyer’s needs. At Buyer’s request, he arranges and conducts inspections of each of these properties with several operations level individuals. Two of the properties were listed for sale exclusively by Listing Broker. After the inspections, Buyer Broker sends Listing Broker a written registration letter in which he identifies Buyer’s company and outlines his expectation to be paid half of any commission that might arise from a transaction on either of the properties. Listing Broker responds with a written denial of registration, but agrees to share any commission that results from a transaction procured by Buyer Broker on either of the 2 properties. Six weeks after the inspections, Buyer selects one of the properties and instructs Buyer Broker to initiate negotiations with Listing Broker. After several weeks the negotiations reach an impasse. Two weeks later, Buyer Broker learns that Listing Broker has presented a proposal directly to Buyer for the other property that was previously inspected.
Buyer Broker contacts Listing Broker,
and demands to be included in the
negotiations. Listing Broker refuses,
telling Buyer Broker that he has “lost
control of his prospect,” and will not be
recognized if a transaction takes place on
the second property. The negotiations
proceed, ultimately resulting in a sale of
the second property.
Fact
Pattern
#4
Claims
(NAR)
Despite the fact that no MLS is involved,
Buyer Broker may still submit an
arbitration claim against Listing Broker
based on the fact that a writing DID exist
between the parties.
The claim would be arbitrable.
Fact
Pattern
#4
Claims
(Contract
Law)
Courts
will
typically
award
a
commission
to
a
broker
that
is
frozen
out
of
a
sale
by
another
broker
to
avoid
paying
a
Fact
Pattern
#4
Analysis
(NAR)
The Hearing Panel will consider Buyer Broker’s
introduction of the property to Buyer, the
property reports prepared by Buyer Broker, the
time between the impasse in negotiations on the
first property and the sale of the second property,
and the Buyer’s reasons for excluding Buyer
Broker from the sale of the second property. If the Hearing Panel determines that Buyer
Broker initiated the series of events that led to the successful sale, Buyer Broker will likely prevail.
Fact
Pattern
#4
Analysis
(Contract
Law)
• Was there any difference between the commissions
for the first and second properties?
• Did the price for the second property change? • Did Buyer’s needs change during the two‐week
period?
• Did the Buyer and Buyer’s Broker have an
agreement for compensation?
• Did an agreement between Buyer and Buyer’s
Five
Tips
to
Avoid
Litigation
1. Don’t let your license expire, and make sure that you have a written agency agreement 2. Introducing a buyer to a property is almost
never enough
3. If you have to talk about indemnification, a suit is likely
4. Even with a significant passage of time, a commission may be owed
5. Act in good faith, your conduct may be judged
David M. “Merc” Pittinos, Esq.
Burns, Figa & Will, P.C.
6400 S. Fiddler’s Green Circle, Suite 1000
Greenwood Village, CO 80111
Telephone: 303‐796‐2626
E‐mail: mpittinos@bfwlaw.com
www.bfwlaw.com
Scott A. Peterson, General Counsel
Colorado Association of REALTORS®
309 Inverness Way South
Englewood, CO 80112
Telephone: 303‐790‐7099
Email: speterson@coloradorealtors.com